Obamacare’s Delusional Deficit Reduction Claims

Congressional leaders are gleefully reporting that the Congressional Budget Office score of their health care proposal released yesterday shows that their legislation would reduce the federal deficit by $138 billion in the first ten years. Not so fast—consummate professionals though they are, CBO provides a projection based on assumptions about the future conduct of Congress that do not always represent reality.

Ruth Marcus of the Washington Post, not exactly a supporter of the GOP, puts it this way: “…Democrats will be pointing to this preliminary CBO score as if it is engraved on stone tablets. Republicans will proclaim their respect for the CBO and proceed to argue that its estimates should not be taken too seriously in this instance. This may come as a surprise, but I think the Republican argument is closer to correct. To crow, as did House Speaker Nancy Pelosi, that the package is “a triumph for the American people in terms of deficit reduction” is premature at best, delusional at worst.”

The reasons to expect wide discrepancies between the actual and projected cost of the bill lie in the gimmicks employed within the language of the bill to make it score as less expensive than it actually is. Included are the usual suspects we have seen time and again, including:

Exclusion of the doc fix. The “doc fix,” which repeals a $371 billion Medicare cut for physician fees, is rolled into a separate bill. Lawmakers must remember: just because it’s not included in the official health bill doesn’t mean it doesn’t count as real spending.

Double-counted savings from the CLASS Act. The CLASS Act included in the bill creates a new entitlement for which beneficiaries would pay premiums upfront for benefits received further down the road. Marcus explains: “Of the $138 billion saved in the first 10 years, $70 billion represents premiums collected for a new long-term-care program, money the government will have to pay in benefits later.” The revenue from the CLASS Act thus represents a false offset to other new spending.

Dubious savings from Medicare. The bill contains billions in cuts to Medicare to offset other costs. As Marcus points out, “The CBO is required to assume that Congress will do what it promises”, making the point that politically unpopular spending cuts are unlikely to ever come to fruition—as best evidenced by the “doc fix” that occurs every year, adding to the deficit.

A false ten year cost window. CBO scored the first ten years of enactment of the bill, which includes several years of raising revenue and fewer years of expenses. According to budget expert James Capretta, “Over a full ten years of implementation, the cost of the new entitlement spending would reach $2.5 trillion, at least, not $1 trillion as advertised by the White House.”

The reconciliation package also includes new gimmicks and questionable sources of revenue:

Delay of an unpopular tax. Under the reconciliation bill, the excise tax on high cost plans would be implemented in 2018, thus reducing the total ten year revenues from the projected $149 billion under the Senate bill to just $32 billion. More interestingly, the reconciliation bill would index the application of the tax to growth in the Consumer Price Index (general inflation), which means that more and more middle class Americans would be affected by the tax once its collection began in 2018. Kicking this tax down the road to a future President and Congress portrays the unwillingness of lawmakers to collect it. Marcus questions, “Will the tax really be collected…long after many of those voting for it will have left office, long after the benefits it is helping to finance have kicked in?”

Decreased value of subsidies. Says Capretta, “to jury-rig “long-term deficit reduction,” the latest plan would first increase the premium assistance subsidies paid to low and moderate wage families above the levels in the Senate-passed bill, but then index their value to something below the growth in premiums to give the appearance of deficit reduction in the decade after 2019.”

“But even some lawmakers who voted for the Senate bill have been calling in recent weeks for additional steps to be taken to guarantee that new spending will not spiral out of control. They also want to ensure that Congress will follow through on proposed cuts, especially reductions to slow the growth of Medicare.

Many experts have warned that members Congress may not have the stomach to carry out the proposed cuts in the future. In January, five Democratic senators, including Michael Bennet of Colorado and Mark Warner of Virginia, sent a letter to the Senate majority leader, Harry Reid of Nevada, urging him to include a “fail-safe” mechanism in the final bill that would result in cuts if spending were to exceed estimates.”

Blue Dog Democrats’ lingering suspicions regarding this bill’s spending spree are justified. Only in Washington is massive spending incorrectly attributed as the way to control costs. The American people have shown in poll after poll that they clearly understand this, even as the ideologically driven Congressional leadership refuses to listen to them.

Vivek Rajasekhar contributed to this post.

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Garbage in, garbage out? Sounds like the CBO is simply playing with numbers. My father-in-law was a young adult during the Great Depression. He remembered FDR's New Deal and the assurances made at that time about Social Security. His generation was told the SSN would not be used as a national ID. That the SS tax would only be used to fund supplemental incomes for workers' in their later years. Need I say more?

Indeed Paul. The reason they can claim that is because it supposes to A) Raise Taxes (direct or indirect) and B) Cut Spending elsewhere.

As this article shows, both reasons are quite suspect in reality. "Cadallac" taxes can't be passed now, even with the full bill that they want so much – how can we expect it to happen later? Same with the future cut in subsidies – they'll "doc fix" that same as they do now with unpopular cuts in doctor payments in Medicare now. So, sure some of the revenue gains will happen – but many of them are clearly unrealistic to expect. Therefore, it will raise the defecit under nearly any reasonable scenario.

Besides, given the current defecit, if we had those ways to raise revenue/cut expenses we should do them without the health care entitlement expansion. Few of the money raising/saving features have much to do with the bill itself is trying to do.

I am confused about the 0.5 trillion dollar cut in Medicare that has been mentioned on numerous occasions. What would be cut from Medicare benefits as a result? I saw something in the Washington Post today that indicated that some of the things in the current bill were ideas originally proposed by the Heritage Foundation. Is that true and, if so, what is in the bill that was generated by Heritage?

[…] were told that with the passing of ObamaCare, the deficit would be lowered by $138 billion in the first 10 years (the government collects 10 years of taxes for 6 years of service). Now Elmendorf is telling us this […]

[…] Credit: Meanwhile, the latest Rasmussen poll finds that 63% of Americans are smart enough to recognize that Obamacare will increase our ballooning deficits, even though the Democrats in Congress and President Obama have the audacity to argue that it will actually reduce the deficit by $138 billion over the first ten years. Of course, that claim is completely delusional. […]

[…] care plan would reduce the deficit and put us on a path towards fiscal responsibility? Remember how Congress kept gaming the system to come up with the Congressional Budget Office (CBO) score that could justify those claims? Well, […]

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